Is Larry Fink Right About the Equity Rally?
Equities are rallying, and BlackRock's (BLK) - Get Report Larry Fink is concerned.
"I don't think we have enough evidence to justify these levels in the equity market at this moment," Fink, the founder and CEO of the world's largest asset manager, said Thursday on CNBC.
Although the Dow Jones Industrial Average and the S&P 500 both hit record highs this week, Fink attributed those rises to institutional investors covering their short positions by buying equities.
Indeed, he asserted, investors are pumping money into fixed-income products, evidence of "a risk-off trade, as we call it, around the world."
Fink's remarks, however, are being misinterpreted, says Jim Cramer, TheStreet's founder and manager of the Action Alerts PLUS portfolio. Pundits and investors are forgetting Fink's acknowledgement that this earnings season will be key, he said. Fink told CNBC, "If corporate earnings are going up, then it may validate these [market] prices."
"Remember, it was twofold. He's cautious on the market based on what he sees now, but I think he'd have to relent and be less cautious if the earnings are good," Cramer said. "He's basing that on steady earnings. What happens if we're at an inflection point?"
Cramer noted the bevy of strong earnings releases this week, including JPMorgan Chase (JPM) - Get Report , CSX (CSX) - Get Report and Alcoa (AA) - Get Report . "If you get a continuation of that litany I just gave you, that's quite different from what we had in the first quarter," he added.
Another solid round of results came from BlackRock on Thursday. In its second quarter, ending June 30, the company's earnings per share of $4.78 and revenues of $2.804 billion matched analysts' expectations, although they fell year-over-year. Assets under management increased to about $4.9 trillion, up 4% year-over-year and 3% sequentially.
Fink said in a statement that "political and macroeconomic uncertainty, historically low yields and elevated market volatility" were prompting investors to flee to cash. BlackRock shares were down 0.5%, to $355.56, in trading Thursday afternoon.